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Existing Solutions

Currently there are a few solutions to making real estate investing more accessible. Below we analysed some of these options. 


Timeshares 

Timeshares used to be very popular in the 70’s through 90’s. Timeshares, however, cannot be viewed as investments with the goal of generating income, but rather as a way to save costs when vacationing(Fontinelle and Witkowski). 


Real Estate Investment Trusts (REIT) 


The US stock market’s response to the problem presented above are Real Estate Investment Trusts (REIT). These are funds generating profits in one of 3 ways: renting out properties, selling properties or financing real estate loans. They are required to return at least 90% of these profits as dividends every year. 


While this sounds like the ideal solution on paper, REITs suffer from the following drawbacks: 

● High minimum investment amount (O'Connell and Mansa) 

● Low ROI - average of 8,34% over the last 10 years(Nareit) 

● Investors cannot choose which properties to invest in 


Fractional Real Estate Platforms 


There are several platforms crowdfunding the purchase of real estate properties with the purpose of renting them out or selling at a profit. Some of these even use the latest cryptocurrency technologies, thus allowing the investors to actually own and freely trade these investments. 


While investors appreciate these properties being physically owned by the company in charge of the platform (and indirectly by them), there are some drawbacks to this. 


Since the business model depends on real estate prices rising (or atleast staying the same), such investments are at great risk during real estate market downturns. If these properties drop in value, these can lead to a large negative ROI for the investors (sometimes up to-50%). 


Real Estate Crowdfunding Platforms 


One of the newer solutions to this problem are Real Estate Crowdfunding Platforms. Starting with 2014 more and more such platforms have been launched, and the amount financed has grown as well (Statista GmbH). 


These allow peopleto invest in real estate loans starting with small amounts (50$). These offer much better cash-on-cash returns than the above options, with an average of more than 10% annualised return. Since the investors are financing loans, not buying real estate, this option grealy minimises the risk of real estate price drops(Mucedola). 


However these platforms suffer from the following drawbacks: 

● Fundraising campaigns are not transparent 

● Investors do not actually own these shares themselves 

● Secondary market trades can only happen on the platform

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